State Budgets

North Dakota State of the State: A Hands-Off Approach Working for Economy

In his second State of the State Address, North Dakota Governor Doug Burgum declared, “The State of the State is one of unlimited promise and potential, provided that we embrace change, we diversify our economy, and we harness the unstoppable forces of technology.” He covered a wide range of accomplishments and challenges, including technological innovation, budget prioritization, higher education initiatives, and lessons learned from the Dakota Access Pipeline construction controversy.

Oil prices remain more than 40 percent off their highs in 2014 and natural gas prices are more than 60 percent off their highs in 2014. And although the slump in oil and commodity prices forced lawmakers to cut state’s general fund appropriations by $1.7 billion the last biennium, the governor argued there is room for optimism. Burgum highlighted signs of a recovery, including tax revenues, are running ahead of forecast for the 2017-19 biennium. Despite the modest recovery, he cautioned that a revenue gap is still expected for 2019 and expressed his desire to work closely with lawmakers to keep spending within available revenues.

The governor pointed out the importance of the Legacy Fund approved by voters in 2011. Since 2011, 30 percent of the total annual revenue from oil and gas production flows to this fund for future use—total assets topped $5 billion last year. While noting the fund helped pave over a budget shortfall last session and may again be needed, he warned against drawing on the fund’s principal to pay for core services and government operations. Further, he called upon lawmakers and voters to come up with a plan for how to use its earnings for projects with long-term benefits. North Dakota weathered the effects of the 2008 financial crisis as well as it did, largely because of the Bakken oil fields. The foresight in establishing the Legacy Fund has helped cushion the impact of the commodities downturn. Future lawmakers should be vigilant the fund doesn’t hoard too much that could be returned to taxpayers through tax cuts.

Moving on to discuss the state’s economic drivers, Governor Burgum highlighted the success of the state’s hands-off approach to the energy industry: “There’s lots of competition. We have an approach in our state, which is all of the above. So we’re supporting oil and gas. We’re supporting coal. We’re supporting wind.” He noted that oil production is set to hit record levels this year. Natural gas opportunities also abound, both from production and infrastructure development. And thanks largely to coal production, electricity prices are tied for second lowest in the nation. In particular, he congratulated the many agencies and groups that help bring the controversy around the Dakota Access Pipeline to a peaceful resolution.

In an ongoing effort to improve higher education, Governor Burgum announced plans to tour all of North Dakota’s public colleges and universities to assess the best ways to reform their governance structure and ensure they are meeting the educational and workforce needs of the state’s employers and jobs. He declared “we want to make sure we get an understanding of where we and how we can create a governance system that allows our higher education to be nimble and dynamic at a time of dramatic change.”

Governor Burgum also discussed the need to utilize dynamic technological advancements to improve the state’s approach to the biggest budgetary line items, including health care and education. He highlighted that one of the responsibilities of citizens and governments under free markets is to evolve and adapt to the changing times and encouraged a continuation of lawmakers’ drive to “reinvent” government. Like last year, he asked for all spending to be considered holistically and for cross-agency cooperation to adopt policies to a changing cultural and job environment.

North Dakota consistently ranks in the top five in both economic outlook and economic performance the Rich States, Poor StatesALEC-Laffer State Economic Competitiveness Index. As the governor explained, “The success we’re seeing in our state right now, the resilience we have…it’s not about government, it’s about the private sector. It’s about entrepreneurs and innovators and the people. It’s that spirit of innovation that’s driven our state since the beginning and continues to drive it forward.” He further credited “free markets and the ability to take risks.” Indeed, the state massively benefits from its pro-growth policies, including low personal and corporate income taxes, low property tax burdens, and not levying an estate tax.

The continued focus on responsible budget processes, low tax burdens, and efficient government operations will safeguard the prosperity of the hardworking North Dakotan taxpayers and businesses.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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